Coming off a good year, small-cap funds may lead again in 2005

Can the nation's stock mutual funds have a "three-peat" in 2005 by producing their third consecutive year of positive returns?

Portfolio managers of some of last year's top funds believe there's a good chance the winning ways will continue.

Like a phoenix up from the ashes, funds that hold stocks in the telecommunications and the science and technology fields could lead the way. They were resuscitated in 2004 and continue to show promise.

"We are now in a good phase of slow growth in the economy, which should mean an up stock market this year," said Dan Perkins, portfolio manager of Perkins Opportunity Fund, up 29.58 percent in the fourth quarter. "Small-cap funds have been leading the market for the last five years and, since these trends usually last seven years, they should have a few more years of leadership."

The average U.S. diversified equity fund gained about 11 percent in the fourth quarter, boosting the average increase for the full year to 12 percent, according to fund-tracker Lipper Analytical Services. Small- and mid-cap stock funds handily outperformed large-cap funds, while world funds beat domestic funds.

It pays to know tech trends at all levels. Stock of M Systems Flash Disk Pioneers Ltd. (FLSH), developer of data storage for digital consumer electronics, and Coinstar Inc. (CSTR), which owns self-service coin-counting machines, were stars of Perkins Opportunity Fund.

"There is guarded optimism that 2005 will be a positive year," said Don Cassidy, senior research analyst with Lipper in Denver, who believes the market is tugged between rising corporate profits and rising interest rates. "It is guarded because markets would likely be affected if an event such as a domestic terrorist episode occurred."

Top-performing stock funds in the fourth quarter of 2004, excluding those with high minimum investment requirements, according to Lipper, were:

• Birmiwal Oasis Fund (Ticker Symbol Pending), $8 million in assets; "no load" (no sales charge); 800-417-5525; $1,000 minimum; up 30.13 percent.

• Fidelity Select Medical Delivery (FSHCX), $283 million; no load; $2,500 minimum; 800-343-3548; up 29.79 percent.

• Perkins Opportunity Fund (POFDX), $13 million; no load; $2,500; 800-998-3190; up 29.58 percent.

• Hartford Global Communications "A" (HGCAX), $11 million; 5.5 percent load; $1,000 minimum; 888-843-7824; up 29.28 percent.